Milk Farmers' Risk Attitudes: Influence of the Dairy Processing Company

European market deregulation is destabilizing the economic environment of French farmers leading to an increase in market risks. In the dairy sector, the 2003 CAP reform has lead to major changes (removal of export subsidies and increase in the European milk quota). The dairy supply chain is now coping with higher production and price risks. The dairy supply chain is thinking of new management tools in order to both maintain stability in dairy farm income and secure supply to industrial facilities. One solution may be to strengthen marketing contracts. In this perspective, the knowledge of dairy farmers' risk attitudes is necessary. The goal of this paper is to provide empirical insight into: dairy farmers‘ perceptions of risk and risk management, and the influence of the relationship between farmers and their dairy processing firm on these risk perceptions. Data originate from a sample of eighty livestock farmers in Normandy, one of the three biggest French milk production areas. The survey was carried out during a face-to-face interview in summer 2008. The questionnaire survey focuses on risk perception and strategies used to manage the risk, by asking the farmers to score risks sources and strategies on Likert-scales as in Bard and Barry (2000), and Meuwissen et al. (2001) and on the elicitation of dairy farmers‘ risk preferences using Pennings and Garcia‘s methodology (2001). As in previous studies (Gunjal and Legault, 1995; Meuwissen et al., 2001; Flaten et al., 2005; Fausti and Gillespie, 2006) we show existence of a diversified spectrum of risk preferences and rank risk sources. Institutional risk and price volatility of inputs and outputs are perceived as the main threat on farm income. However, our main contribution is to examine the influence of dairy processors on farmers‘ preferences and the study attempt to establish a link between the type of contractors (eg. private vs. cooperative) and farm managers‘ risk aversion